KUALA LUMPUR: Scomi Group Bhd provided more details on Monday into its proposed merger with its subsidiaries Scomi Energy and Scomi Engineering, in response to a query by Bursa Malaysia on Aug 24, 2017.
Risks
Scomi says the proposed mergers are not expected to give rise to new risks as it currently holds 65.6% and 73.3% stakes in the companies, respectively.
In its filing with Bursa Malaysia, Scomi notes that the market risks and factors that will affect Scomi Energy includes market pricing for the oil and gas industry and operational risks such as fires and natural disasters.
Risks that affect both Scomi Energy and Scomi Engineering includes, among others, investment and foreign exchange risk for both businesses.
"As at 31 March 2017, the Scomi Energy Group and the Scomi Engineering Group held a significant balance of trade receivables amounting to RM710.4mil and RM183mil respectively," it said.
Scomi Energy prospects & growth plan
"The prospects of the Scomi Energy Group are expected to be positive moving forward with possible increased drilling activities in the global oil and gas sector, barring any major geo-political developments," said Scomi.
It adds that the decision to maintain production quotas will feature as a key factor in crude oil price recovery.
The group's key markets continue to see an increase in rig counts but the extent of the global recovery remains uncertain.
"The impact to oilfield services will lag as oil majors need time to reach a final investment decision for new projects and award new supply contracts. As such, recovery is expected to be gradual and the effects will be more apparent in the later part of Scomi Energy’s financial year ending 31 March 2018 and beyond."
In its marine business, the group expects the current activity level to continue with high coal prices resulting in encouraging utilisation rates for its coal vessels.
As for Scomi Energy Group’s development and production asset and services unit, the Ophir marginal field project is expected to contribute to the group's financial performance as first oil is expected for the third quarter of 2017.
Scomi Engineering prospects & growth plan
The group notes that Scomi Engineering has RM3.3bil worth of project tenders and an order book of RM1.9bil.
While there will be challenges in the form of weak crude oil prices and slow economic growth in key markets, there will be opportunities from growing demand for mass public transport and rising urban populations around the world, it said.
"In the short-term, markets that offer the Scomi Engineering Group with potential opportunities include Thailand, Turkey, Dubai, China, Sri Lanka, Philippines and Taiwan," it said.
In the domestic market, Scomi Engineering aims to capitalise on continued government spending in rail systems.
"In respect of commercial vehicles, opportunities are also present as the Mass Rapid Transit (MRT) Phase 2 and proposed Bus Rapid Transit solution are anticipated to require feeder buses, of which the Scomi Engineering Group expects to capitalise on these prospects having proven its capabilities," it said.
Scomi Engineering is looking to strengthen its engineering and manufacturing position via:
* bidding for all opportunities in its current business segments,
* continuing the development of the next generation of monorail systems by leveraging on new technologies,
* working with strategic partners to develop global monorail standards, especially for guideway infrastructure, and
* growing its facilities concession management services, particularly for operations and maintenance.
Impairments & turnaround plan
The proposed mergers will not involve a huge impairment, according to Scomi, as they "are not likely to result in any impairment loss in view that no negative goodwill will be recognised by Scomi".
"The Proposed Mergers are accounted for under common control transaction, given that Scomi Energy and Scomi Engineering are already subsidiaries of Scomi, ie on book value accounting basis.
"In applying book value accounting, any difference between total consideration paid for the Scheme Shares and the book value of Scomi’s non-controlling interests in both Scomi Energy and Scomi Engineering will be directly recognised in the equity attributable to the owners of the Company," it said.
Scomi will attempt to turn around the loss-making businesses upon completion of the proposed mergers, it added.
Its focus will be on "strengthening the group's financial fundamentals and by implementing cash realisation initiatives to raise at least US$50mil by disposing of and/or streamling its existing assets within 12 months from the completion of the proposed mergers".
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